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The Macroeconomic Effects of Higher Oil Prices

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  • Peter Isard
  • Ben Hunt
  • Douglas Laxton

Abstract

The paper uses MULTIMOD to analyze the macroeconomic effects of oil price shocks, distinguishing between temporary, more persistent, and permanent shocks. It provides perspectives on several findings in the literature and the key role of monetary policy in influencing macroeconomic outcomes. Specific attention is paid to the channels through which oil price increases can pass through into core inflation, a possible explanation of the asymmetric relationship between oil prices and economic activity, the role of monetary policy credibility, the implications of delayed policy responses, and the relative merits of leaning in different directions when the correct policy response is uncertain.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 01/14.

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Length: 46
Date of creation: 01 Feb 2001
Date of revision:
Handle: RePEc:imf:imfwpa:01/14

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Keywords: Oil prices; Economic models; inflation; monetary policy; monetary authorities; inflation target; monetary fund; monetary policy reaction function; nominal interest rate; real output; price level; real wages; gdp deflator; rate of inflation; aggregate demand; inflation process; inflation rate; monetary policy reaction functions; monetary economics; monetary conditions; macroeconomic stability; real interest rate; monetary policy rules; actual inflation; inflation equation; inflationary consequences; rates of inflation; long-term interest rates; monetary policy objectives; inflation performance; monetary policy decisions; measure of inflation; increase in inflation; higher rate of inflation; wage-price; relative price;

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Citations

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Cited by:
  1. Sánchez, Marcelo, 2008. "Oil shocks and endogenous markups: results from an estimated euro area DSGE model," Working Paper Series 0860, European Central Bank.
  2. Aliyu, Shehu Usman Rano, 2009. "Oil Price Shocks and the Macroeconomy of Nigeria: A Non-linear Approach," MPRA Paper 18726, University Library of Munich, Germany, revised 16 Nov 2009.
  3. Francesco Guidi, 2010. "The Economic Effects of Oil Prices Shocks on the UK Manufacturing and Services Sectors," The IUP Journal of Applied Economics, IUP Publications, vol. 0(4), pages 5-34, October.
  4. Fritz Breuss, 2002. "Was ECB's monetary policy optimal?," Atlantic Economic Journal, International Atlantic Economic Society, vol. 30(3), pages 298-319, September.
  5. Ben Hunt, 2005. "Oil Price Shocks," IMF Working Papers 05/215, International Monetary Fund.
  6. LeBlanc, Michael & Chinn, Menzie David, 2004. "Do High Oil Prices Presage Inflation? The Evidence from G-5 Countries," Santa Cruz Department of Economics, Working Paper Series qt9rr929sm, Department of Economics, UC Santa Cruz.
  7. AydIn, Levent & Acar, Mustafa, 2011. "Economic impact of oil price shocks on the Turkish economy in the coming decades: A dynamic CGE analysis," Energy Policy, Elsevier, vol. 39(3), pages 1722-1731, March.
  8. Menzie D. Chinn & Michael LeBlanc & Olivier Coibion, 2005. "The Predictive Content of Energy Futures: An Update on Petroleum, Natural Gas, Heating Oil and Gasoline," NBER Working Papers 11033, National Bureau of Economic Research, Inc.
  9. Pablo Pincheira B & Álvaro García M, 2007. "Oil Shocks and Inflation The Case Of Chile and a Sample of Industrial Countries," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 10(1), pages 5-36, April.
  10. Amstad, Marlene & Hildebrand, Philipp, 2005. "The oil price and monetary policy – a new paradigm," MPRA Paper 15562, University Library of Munich, Germany.
  11. Ruiz, Juan, 2004. "Causas y consecuencias de la evolución reciente del precio del petróleo," MPRA Paper 431, University Library of Munich, Germany.
  12. Guy Meredith, 2001. "Why Has the Euro Been so Weak?," IMF Working Papers 01/155, International Monetary Fund.
  13. Jürgen Janger & Karin Wagner, 2004. "Sectoral Specialization in Austria and in the EU-15," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 37–54.

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